Carbon Consultancy simplifies offset standards proposal – answers FAQ’s

Carbon Consultancy has issued a paper to assist potential clients fully understand the current UK government offset standards proposals.

The paper indicates that the government consultation paper proposes the following key ingredients for any standard.

The use of certified credits to offset emissions. These are CERs, EUAs and ERUs to be made available via the European Trading System for carbon emissions trading which was set up in 2005.

Accurate calculation of emissions.

Clear information of the offset project mechanics.

Transparent pricing

The use of opt out not opt in schemes when selling offsets with goods or services.

The proposed code has been referred to as a Gold Standard and this should not be confused with the existing Swiss based Gold Standard for offsets.

Frequently Asked Questions are as follows:

These are all tradeable instruments set up to help regulate corporate and national emissions through a dedicated trading mechanic. CERs are projects that are located in developing nations but allowed for use in developed countries emissions trading under the Clean Development Mechanism (CDM).ERUs are projects created and operated in the developing world, whilst EUAs are emissions allowances granted to companies and nations, that if unused reflect emissions ‘savings’, and may be sold to those who have exceeded allowances.

EUAs are currently sold via the ETS platform with CERs due to be included. The Carbon Consultancy is already an ETS voluntary registry account holder since August 2006.

The projects and allowances system that back these traded products are carefully scrutinised and satisfy intergovernmental standards and are carefully inspected to ensure delivery of the savings they claim to generate. They are not however guaranteed and with for example CERs, purchasers are buying carbon savings that will deliver over a period of time in the future. They differ from the projects mostly commonly used in the voluntary offset market, which are known as VERs. VERs are not certified for use under the trading mechanism, but in most cases operate according to the project principles used for CERs. VERs are often small scale projects and are operated by offset companies, charities and non governmental organisations. They are designed to deliver carbon savings/storage, but many also have wider environmental benefits.

There are concerns that the government code will penalise some excellent activity in the voluntary sector, that consumer choice over direct offset action will be limited and that the government insistence upon regulated instruments will create barriers to use through limited consumer understanding and acceptance of the products offered. The Carbon Consultancy has offered traded products for corporate clients, but even here the take up has been low versus verifiable VERs.

Any offset that can demonstrate carbon savings or storage is of benefit to the drive to mitigate emissions. The government want clear information on project mechanics as part of the code and should apply standards to existing VER projects to safeguard consumers.

The government consultation paper offers the following view: “Consumers who have already purchased VERrs have made the important decision to pay for the consequences of their actions. They have not been wasting their money, far from it, they have helped to blaze a trail. But, as this market is expanding it is necessary to provide some clarity“. It is hoped that this view will include some VER standard for the UK market to create the clarity required for consumers and will extend to clarity on green taxes which are the government equivalent of compulsory offset.

How will emissions be calculated?

The government would like to see accurate emissions calculations for all offset companies. DEFRA currently publish company guidelines for emissions. For airline travel this is a simple long and short haul calculation that does not reflect any of the key factors affecting individual flights beyond industry wide averaging. These include load factors and aircraft type, such as those included in The Carbon Consultancy advanced calculations. It is hoped that any government standard will include greater refinement of existing DEFRA reporting to enable clear emissions calculations relative to individual purchasing decisions of air or other products.

This is not clear, although the use of CERs may enable greater reassurance on project mechanics. The voluntary market does not currently deliver sufficient clarity on the actual mechanics of VERs, although our own latest product information seeks to improve this. The standard is likely to address the equivalent of questions such as ” If I pay for a low energy light bulb offset and pay £7 for a ton of CO2 offset how many light bulbs will that require, what is the cost each light bulb and how much CO2 will each bulb save?” This simple linkage will help to reassure purchasers of offsets about the value of their purchase from a product and CO2 perspective.

Voluntary offsets currently vary even for the same type of offset. It is likely that pricing under the code will require greater information about how the price is created. Managing and delivering an offset requires, research, monitoring, the purchase of actual carbon storage/saving goods (trees/solar panels etc), transaction costs, administration costs and any profits. This should enable greater comparison by consumers of value for money and avoid concerns over profiteering at the expense of climate change mitigation. This however does not address the fact that the large profits made in the traded sector by financiers involved in trading and creating traded products is vastly in excess of the entire turnover of the voluntary offset industry, where corporate profitability is low. The current turnover of the UK voluntary offset industry is less than £10 million per year. It is difficult to assess the fee/administrative structure involved in CER projects.

CERs and other traded credits have values like any other financial instrument. They are currently traded like stocks and shares, moving in price daily. To underpin their value in the offset market these credits should be retired upon purchase and thus removed from the system. The government suggestion of a timeframe for cancellation/retirement probably reflects the need for clear guidelines to prevent offset companies making profits by trading their clients purchased credits prior to cancellation. The Carbon Consultancy currently have a one month limit for retirement applications and a strict non trading clause for any credits purchased by clients.

The need for a timeframe illustrates the relative complexity of traded credits and although perhaps unintended, could bring the sellers of traded credits into the orbit of financial products trading. This would create more barriers for the voluntary market and reduce consumer usage.

The suggestion that the new code will require companies selling offsets alongside their goods/services for example holidays to provide opt out is perhaps a reflection of the desire to extend activity and create maximum mitigation. Based upon reports from companies already operating voluntary schemes, the use of opt out can deliver as much as 80% uptake whereas opt in can be as low as 10% uptake. The opt in suggestion possibly reflects the desire to avoid offsetting as a limited implementation policy to create an impression of greenness. This is understandable, but does not allow companies to make their own choices based upon their close understanding of their own clients. Many companies use opt in schemes as a primary engagement activity with regard to carbon before developing opt out schemes. Opt out schemes as a compulsory standard could reduce corporate enthusiasm for promoting offsets.

These are just some of the main areas of the consultation, which raises many further questions about the role and direction of climate change mitigation strategy. For a greater insight into the issues raised please contact our offices.

The government are inviting responses to its consultation period prior to mid April. It will then continue to develop standards and appoint an agency to oversee them and administer accreditation. It is likely that any implementation will be early 2008. It is hoped that the consultation period will provide enough support for increased VER regulation.

The Carbon Consultancy will continue to offer both VERs and the government proposed offset units during the interim period ahead of any standards being announced. Our existing VERs are based in the UK precisely to enable verification and viability.

 http://www.thecarbonconsultancy.co.uk

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